We work with a number of manufacturing companies around the world that need help staying on top of everything from daily production metrics (like machine utilization and on-time delivery) to complex financial calculations to ensure profitability. But as a business intelligence software provider, one of the most important processes we’ve been tasked with is helping our clients manage supplier quality.
Managing the performance of your suppliers is crucial for controlling costs and improving the quality of your outputs. Experts say that the cost of poor supplier quality may equal more than 10% of an organization’s revenue, so keeping that number under industry standards is simply a smart financial decision. But how do you embark on this journey?
1) Start with a subset of your suppliers.
One company may have potentially hundreds or thousands of suppliers, so determining a subset to begin measuring is imperative. You can roll out your supplier scorecards to every supplier in the future, but for now, let’s get it right with just a few. I suggest ranking your suppliers by how much impact they have on your product. The most critical suppliers that you can’t continue operations without are the ones that you rely on most heavily, so these are a good place to start. In the middle of the list are suppliers who directly impact your product, but you could seek alternatives if the need arises. At the bottom are suppliers that have no direct impact on your product.
2) Set expectations with your suppliers.
Your suppliers may know they have some poor processes that are straining their relationship with you and would relish the chance to improve them. Let your suppliers know that you’re beginning to track metrics that will help establish what needs improvement. This first step – just being honest – goes a long way toward building mutual trust and should force both sides to become invested in the success of the partnership. It is important that both parties communicate and document performance expectations, and have a mutual understanding of those expectations going forward.
3) Determine your metrics for success.
Your management team is probably already measuring a number of things that can be incorporated into your list of metrics. Your finance team is tracking costs; you may have six sigma principles in place to track defective parts per million; and your logistics system probably has metrics related to on-time delivery. I bet you’re even collecting a wealth of data in spreadsheets for monthly reporting. Gather these existing metrics along with any new information you identify as being important – this is the start of your Supplier Scorecards. Here are some sample metrics to consider and how they will help you:
The Case for Supply Chain Quality Management: Part 2 – The Challenges to Measuring Supplier Performanceby Kathleen Rohrecker
Last time, we discussed the benefits of measuring supplier performance and established that the practice is crucial to an organization’s bottom line. Today, we’re discussing the challenges to measuring supplier performance.
Industry experts suggest that only half of supply chain quality managers effectively measure their suppliers. In speaking with our clients, we’ve uncovered the following challenges that stand in the way of effective measurement of supplier performance:
- There is a lack of actionable information. Many companies do not have an intuitive way to access information in ERP or other databases and present them in one dashboard or scorecard with the ability to drill down to the supplier or even PO level. Problems are often compounded when key data reside in more than one data source.
- Data are not timely. Many companies rely on spreadsheets to collect quality data from plants, which cause inconsistencies and delays.
- Reporting is inconclusive. Without a way to aggregate quality and supplier performance information, it is impossible for management to monitor trends and compare leading performers to lowest performers.
- Data are neither conclusive nor complete. Supply chain quality managers rely on word of mouth from plant managers and on-site quality engineers to assess performance.
- Qualitative information is not captured. Many reporting systems do not provide for the qualitative information that is so important to supplier quality management. Information about site visits, best practices, action plans, etc. must be a part of the overall Supplier Performance Management application.
Are you experiencing these or other challenges in trying to measure your supplier performance? If so, we’d love to hear from you in the comments. Next time, we’ll outline how to establish a fact-based culture within your supplier quality team.